- Kangema Dairies has decided to upgrade its milk Pasteurizing machinery from a firehood heated equipment to electric machinery. The following costs were incurred in acquiring the new machinery on 5 January 2020.
Sh.’000’
Cost price 51,000
Discount to dairy manufacturers 10% of equipment cost
Sea Freight charges 11,900
Customs duty 20% of the CIF price
Value added tax 16% of the CIF price plus duty
Installation costs 34,00
Pre-production testing 2100
Insurance (annual) 1600
Salary paid to machine attendant (annual) 600
Additional information:
- The old equipment was disposed at the beginning of the year ended for Sh. 1200,000 had cost the company Sh. 1,920,000 on 4 January 2011. A lorry acquired on 2 January 2016 at Sh. 6,000,000 was grounded during the year.
- The company has land that cost Sh. 14,000,000 in 2011. Professional valuer’s have advised that the land be revalued at Sh. 26,000,000
- The cooperative society has been using furniture donated in 2013 by a local community based organization. The estimated value at the time of donation was Sh. 2,400,000
- The value added tax on assets is claimable against the output tax
- Depreciation is provided at 15 % on furniture, 12.5% on motor vehicles and 10% on equipment on straight line basis. Full charge is made in the year of acquisition and none in the year of disposal.
Required:
- Ascertain the cost of the new machinery.
- Disposal accounts.
- Provision for depreciation accounts.
- A property, plant and equipment movement schedule for the year ended31 December 2020.
